Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NYSE American under the symbol “IGC” with CUSIP number 45408X308. The common stock of the Company is also quoted on the Frankfurt, Berlin, and Stuttgart (XETRA2) stock exchanges in Germany (ticker symbol: IGS1). In Fiscal 2020 we had public warrants that expired on March 8, 2021.
We also have 91,472 units outstanding that can be separated into common stock. Ten units may be separated into one share of common stock. The unit holders are requested to contact the Company or our transfer agent, Continental Stock Transfer & Trust, to separate their units into common stock.
Further information on the securities can be referred to in Note 13, “Securities” of Part II, Item 8.
Securities authorized for issuance under equity compensation plans
The following table shows (in thousands), as of March 31, 2021, information regarding outstanding awards available under our compensation plans (including individual compensation arrangements) under which our equity securities may be delivered.
Plan category
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (1)
(in thousands)
(b)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(c)
Number of
securities
available for
future
issuance
(excluding
shares in
column (a)(1)
(in thousands)
Equity compensation plans approved by security holders:
2018 Omnibus Incentive Plan (1)
-
$
-
-
Special Grant (2)
1,600
$
0.32
2,715
(1) Consists of our 2018 Omnibus Incentive Plans, as approved by our stockholders on November 8, 2017. See Note 14, “Stock-Based Compensation” of the Notes to the Consolidated Financial Statements included in this report.
(2) Consists of 2 million shares as a special grant of common stock, as approved by our stockholders on January 7, 2020 and 2.5 million shares as a special grant of common stock, as approved by our stockholders on January 11, 2021.
Holders
As of June 7, 2021, we had approximately 49 registered shareholders of record of our common stock and 2 registered unit holders. The number of record holders does not include persons who held our common stock in nominee or “street name” accounts through brokers. Continental Stock Transfer & Trust Company is the transfer agent and registrar for our common stock.
Dividend policy
We have not paid any dividends on our common stock to date and do not intend to pay dividends. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations. Accordingly, our Board does not anticipate declaring any dividends in the foreseeable future.
Unregistered sales of equity securities
None.
Purchases of equity securities by the issuer and affiliated purchasers
None.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
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ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis apply to Fiscal 2021 that ends on March 31, 2021, and Fiscal 2020 that ends on March 31, 2020. These statements should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K.
In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included at the beginning of this Annual Report on Form 10-K.
The risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
Our primary source of revenue in Fiscal 2021, was from our Life Sciences segment, which includes a biopharmaceutical component, and a wellness and lifestyle business, which involves:
(i)
development of potential new drugs, subject to applicable regulatory approvals, that use ultra-low doses of phytocannabinoids including cannabidiol (“CBD”) and tetrahydrocannabinol (“THC”), among others, in combination with other compounds, believed to assist in managing symptoms of diseases like Alzheimer’s,
(ii)
hand sanitizers and several hemp-based CBD products and brands, in various stages of development, for sale online and/or through stores,
(iii)
wholesale of hemp extracts including hemp crude extract, and hemp isolate, among others,
(iv)
white labeling of hemp-based products, and
(v)
the offering of tolling services like extraction and distillation to hemp-farmers and retailers.
Our primary source of revenue in Fiscal 2020, was from our Infrastructure segment. In Fiscal 2021, we significantly reduced the buying and selling of construction materials in Hong Kong because of what we perceive to be a slow-down in the Hong Kong economy due, in part, to COVID-19. The Company’s Infrastructure segment, involves:
(i)
Execution of Construction Contracts – The Company is executing a road building contract in Kerala, India valued at approximately $1.2 million. Work on this project is sporadic based on COVID-19 restrictions.
(ii)
Purchase and Resale of Physical Commodities Used in Infrastructure – This business line includes the purchase and resale of commodities, including steel, wooden doors, marble, and tiles, among others. This work has been adversely affected due to COVID-19. There was no revenue from this business line during Fiscal 2021, in part due to the COVID-19 pandemic.
(iii)
Rental of Heavy Construction Equipment – We own heavy construction equipment such as motor grader and rollers, that we rent to construction contractors. This business is seasonal and had minimal revenue during Fiscal 2021, in part due to the COVID-19 pandemic.
We have a two-pronged strategy for our Life Sciences, biopharmaceutical component: the initial prong is to investigate IGC-AD1 for safety and efficacy in managing the symptoms of Alzheimer’s disease. This involves conducting Phase 1 through Phase 3 trials on IGC-AD1 over the next several years, with the anticipated goal of demonstrating safety and efficacy and potentially obtaining FDA approval for IGC-AD1 as a cannabinoid-based formulation that can help manage some symptoms for patients suffering from Alzheimer’s disease. The second prong is to investigate the potential efficacy of IGC-AD1 on memory and/or decreasing or managing plaques and tangles, some of the hallmarks of Alzheimer’s disease.
Our pipeline of investigational cannabinoid formulations also includes pain creams and tinctures for pain relief. We believe that the biopharmaceutical component of our Life Sciences strategy will take several years to implement and involves considerable risk; however, we believe it may involve greater defensible growth potential and first-to-market advantage.
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Our shorter-term strategy also includes becoming vertically integrated in the hemp industry, as we believe this may afford us the opportunity to create the right processes, quality, and replicability for eventually creating pharmaceutical grade formulations. We also believe this may provide us with several profit opportunities, all conducted in accordance with applicable laws and regulations, and only in locations where it is legal to do so, such as:
●
sale of our products, under the Herbo™, Hyalolex™, Holief™, and Sunday Seltzer™ brand lines, among others;
●
white labeling of products such as hemp-based CBD infused lotions, creams, and oils for other brands;
●
wholesale of hemp extracts including hemp crude extract and hemp isolate;
●
processing of hemp biomass and crude oil for farmers in the Northwest U.S. and Canada; and
●
using our manufacturing and trading platform for trading in infrastructure commodities to assist in delivering emergency products such as hand sanitizers, gloves, and other personal protection equipment for the length of the COVID-19 pandemic.
We believe that the additional investment in clinical trials, research, and development (“R&D”), facilities, marketing, and advertising, as well and the acquisition of products and businesses supporting our Life Sciences segment, are likely to be critical to the development and delivery of innovative products and positive patient and customer experiences. Part of our strategy is to leverage our R&D and our intellectual property to develop products that we believe are likely to be well-differentiated and -supported by science through planned pre-clinical and clinical trials. We believe this strategy has the potential to improve existing products and lead to the creation of new products, which, based on scientific study and research, may offer positive results for the management of certain conditions, symptoms, and side effects.
In Fiscal 2021, we received a notice from the FDA to proceed with a 12-subject Phase 1 human clinical trial (“removal of full clinical hold”) on our INDA, submitted under Section 505(i) of the Federal Food, Drug, and Cosmetic Act, for our tetrahydrocannabinol (“THC”)-based formulation, “IGC-AD1,” intended to alleviate the symptoms of participants suffering from Alzheimer’s disease. On May 14, 2021, the Company announced it had completed Cohort 1 of its Phase 1 clinical trial. This was followed by Company announcement for completion of Cohort 2 on June 7, 2021.
The Company operates both business segments in compliance with applicable state, national, and local laws, and regulations and only in locations and regions where it is legal to do so.
COVID-19 Update
As our infrastructure business is based in Asia (India and Hong Kong), the COVID-19 pandemic and restrictions imposed by governmental entities adversely impacted, and continues to impact, our financial condition, liquidity, and operations. In Fiscal 2021, we experienced substantially reduced revenue from Infrastructure. We anticipate that reduced revenue from Infrastructure will continue in Fiscal 2022 as the pandemic continues to affect the regions where we do business. In particular, during Fiscal 2021:
1.
Our revenue from the infrastructure business was adversely affected with increased expenses. We are executing a road building contract in Kerala, India valued at approximately $1.2 million. Work on this project is sporadic based on COVID-19 restrictions.
2.
In response to the COVID-19 pandemic, we manufactured and distributed alcohol-based hand sanitizers. The majority of our revenue for Fiscal 2021 is from the sale of hand sanitizers. In an effort to help some of the hardest hit communities, we donated hand sanitizers to the Federal Emergency Management Agency (FEMA), the Navajo Nation in Arizona, the Crow reservation in Montana, and the Sioux reservation in South Dakota.
3.
Due to the pandemic, we were unable to process our harvested hemp crop grown in Arizona because of difficulties associated with transportation and third-party processing.
Fiscal 2021 Highlights
• On January 13, 2021, the Company entered into a Sales Agreement (the “Agreement”) with The Benchmark Company, LLC (“Benchmark”) (the “Sales Agent”) pursuant to which the Sales Agent is acting as the Company’s sales agent with respect to the issuance and sale of up to $75,000,000 of the Company’s shares of common stock, par value $0.0001 per share (the “Shares”), from time to time in an “at the market” (“ATM”) offering as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the “Offering”). As of March 31, 2021, the Company raised approximately $14.2 million from the ATM, net of commission. The management may use these funds for working capital and capital expenditure requirements, along with clinical trials, share repurchases, debt repayments, investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes.
• On December 2, 2020, we filed a provisional patent application with the USPTO for our IGC-512 formulation for a cannabidiol-based composition and method for stress relief and calm restoring beverage.
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• On August 5, 2020, the USPTO issued the Company a patent (#10751300) for the Company’s cannabinoid formulation (IGC-502) for the treatment of seizures in humans and veterinary animals.
• On July 17, 2020, the Company filed a provisional patent application with the USPTO for its IGC-511 formulation for a Cannabidiol-based composition and method for treating pain.
Results of Operations
Fiscal 2021 compared to Fiscal 2020
The following table presents an overview of our results of operations for Fiscal 2021 and Fiscal 2020:
Statement of Operations (in thousands, audited)
Fiscal
2021
($)
2020
($)
Change
($)
Percent
Change
Revenue
898
4,072
(3,174
)
(78
%)
Cost of revenue
(785
)
(3,957
)
3,172
(80
%)
Gross Profit
113
115
(2
)
(2
%)
Selling, general and administrative expenses
(7,908
)
(5,968
)
(1,940
)
33
%
Research and development expenses
(929
)
(1,011
)
82
(8
%)
Operating loss
(8,724
)
(6,864
)
(1,860
)
27
%
Impairment of investment
(169
)
(782
)
613
(78
%)
Other income, net
82
331
(249
)
(75
%)
Loss before income taxes
(8,811
)
(7,315
)
(1,496
)
20
%
Income tax expense/benefit
-
-
-
-
%
Net loss attributable to common stockholders
(8,811
)
(7,315
)
(1,496
)
20
%
Revenue – Revenue in Fiscal 2021, was primarily derived from our Life Sciences segment, which involved sales of products such as alcohol-based hand sanitizers, among others. In Fiscal 2020, our revenue was primarily derived from the infrastructure segment. Revenue was approximately $898 thousand and $4.1 million for Fiscal 2021 and Fiscal 2020, respectively.
Revenue in the Life Sciences segment in Fiscal 2020, was $411 thousand as compared to $723 thousand in Fiscal 2021, albeit with a change in product mix. At the same time, revenue in our Infrastructure segment for Fiscal 2020 was $3.6 million and $175 thousand in Fiscal 2021. Such revenue relates to execution of construction contract. Primarily due to COVID-19, we have limited visibility on when either of our segments will stabilize, generate significant revenue, and become predictable. We expect volatility in both segments in the foreseeable future. We expect to be opportunistic in providing personal protection equipment, including hand sanitizers, as the country reopens from the pandemic.
Cost of revenue – Cost of revenue amounted to approximately $785 thousand for Fiscal 2021, compared to $4 million in Fiscal 2020. The cost of revenue in Fiscal 2021, is primarily attributable to raw materials that are required to produce our products.
Selling, general and administrative expenses – Selling, general and administrative expenses consist primarily of employee-related expenses, sales commission, professional fees, legal fees, marketing, other corporate expenses, allocated general overhead and provisions, depreciation and write-offs relating to doubtful accounts and advances, if any. Selling, general and administrative expenses increased by approximately $1.9 million or 33% to $7.9 million for Fiscal 2021, from approximately $6 million for Fiscal 2020. The increase of approximately $1.9 million is attributed to one-time settlement expenses of approximately $225 thousand, provision for legal fees of approximately $200 thousand, $307 thousand inventory related adjustments, approximately $63 thousand provision for doubtful debt, compensation expenses attributed to increased head count and associated employee-related expenses, marketing and professional expenses related to expansion of brands and depreciation expense related to increase in Property, Plant and Equipment.
Research and Development expenses – Research and Development (“R&D”) expenses were attributed to our Life Sciences segment. The R&D expenses for Fiscal 2021 are approximately $929 thousand and approximately $1 million for Fiscal 2020. The cost associated with this work is mostly research comprising of plant extracts that could be productized and data to support the efficacy of the extracts, including preparing for and conducting FDA trials, product research, designing, formulating and market analysis. We expect R&D expenses to increase with progression in Phase 1 trials on IGC-AD1.
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Impairment loss – On May 12, 2020, the Company acquired approximately 19.8% shareholding in Evolve I, Inc., a Washington corporation (“Evolve”) under the terms of a Share Subscription Agreement (“SSA”) for a consideration of approximately $249 thousand. However, based on an assessment of the business environment, the Company decided to dispose the holding and amicably exit the acquisition. In light of the above, the Company recorded an impairment of $169 thousand as of March 31, 2021.
Pursuant to the December 18, 2014 Purchase Agreement with Apogee, we issued Apogee 1.2 million shares of IGC’s common stock valued at $888 thousand for the purchase of a 24.9% ownership interest in Midtown Partners & Co., LLC (“MTP”). During Fiscal 2018, after considering several factors, the Company concluded that it no longer had significant influence over MTP and hence maintained the same value of investment of approximately $773 thousand. During Fiscal 2020, the Company decided to impair this investment. The Company still owns 24.9% ownership in MTP as on March 31, 2021.
Other Income, net – Other net income decreased by approximately $249 thousand or 75% during Fiscal 2021. The total other income for Fiscal 2021 and 2020 is approximately $82 thousand and $331 thousand, respectively. Other income includes interest income, rental income, dividend income and unrealized gains from marketable securities, net, and income from sale of scrap, among others.
Liquidity and capital resources
Our sources of liquidity are cash and cash equivalents, funds raised through “at the market” (“ATM”) offering, cash flows from operations, short-term and long-term borrowings, and short-term liquidity arrangements. The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations. The Company does not have any material long-term debt, capital lease obligations or other long-term liabilities, except as disclosed in this report. Please refer to Note 12, “Commitments and contingencies”, Note 11, “Loans and Other Liabilities” and Note 9, “Leases” in Item 8 of this report for further information on Company commitments and contractual obligations.
While the Company believes its existing balances of cash, cash equivalents and marketable securities and other short-term liquidity arrangements will be sufficient to satisfy its working capital needs, capital asset purchases, share repurchases, debt repayments, investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes, clinical trials and other liquidity requirements, if any, associated with its existing operations over the next 12 months, it will raise money as and when it is able to do so. The Company continues to utilize the ATM to raise capital. Shares issuable under the ATM could be dilutive to the Company’s shareholders. Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, legal expenses, and workforce.
Please refer to Item 1A. “Risk Factors” for further information on the risks related to the Company.
(in thousands, audited)
As of
March 31, 2021
($)
As of
March 31, 2020
($)
Change
($)
Percent Change
Cash, cash equivalents
14,548
7,258
7,290
100
%
Working capital
21,149
15,811
5,338
34
%
Cash and cash equivalents
Cash and cash equivalents increased by approximately $7.3 million to $14.5 million in Fiscal 2021, from $7.3 million in Fiscal 2020, an increase of approximately 100%.
The major increase was due to approximately $14.2 million of net proceeds from ATM sales and approximately $5 million proceeds from investment in marketable securities, part of which was set-off with $1.5 million in purchase of property, plant, and equipment, approximately $1.2 million in inventory and a net cash loss of approximately $7.5 million.
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Summary of Cash flows
(in thousands, audited)
Fiscal
2021
($)
2020
($)
Change
($)
Percent Change
Cash used in operating activities
(10,800
)
(8,677
)
(2,123
)
24
%
Cash provided by (used in) investing activities
3,387
(9,547
)
12,934
(135
%)
Cash provided by (used in) financing activities
14,688
(59
)
14,747
(24,995
%)
Effects of exchange rate changes on cash and cash equivalents
15
(69
)
84
(122
%)
Net increase/(decrease) in cash and cash equivalents
7,290
(18,352
)
25,642
(140
%)
Cash and Cash Equivalents at the beginning of period
7,258
25,610
(18,352
)
(72
%)
Cash and cash equivalents at the end of the period
14,548
7,258
7,290
100
%
Operating Activities
Net cash used in operating activities for Fiscal 2021, was approximately $10.8 million. This consists of a net loss of approximately $8.8 million and non-cash items totaling approximately $1.3 million, which in turn consist of an amortization/depreciation charge of approximately $478 thousand, impairment of investment of $169 thousand and stock-based expenses totaling approximately $658 thousand. Changes in operating assets and liabilities had a negative impact of approximately $3.3 million on cash, of which approximately a $1.2 million is due to investment in inventory and approximately $2.2 million due to Deposits and advances.
Net cash used in operating activities for Fiscal 2020 was $8.7 million. This consists of a net loss of $7.3 million and non-cash items totaling $1.7 million, which in turn consist of an amortization/depreciation charge of $144 thousand, impairment loss of $782 thousand, and stock-based expenses totaling $770 thousand. Changes in operating assets and liabilities had a net negative impact of $3 million on cash of which approximately $4 million was due to increase in inventory.
Investing Activities
Net cash provided by investing activities for Fiscal 2021, was approximately $3.4 million, which is comprised of expenses of approximately $122 thousand for the acquisition and filing expenses related to intellectual property, purchase of property, plant, and equipment of approximately $1.5 million, sale of property, plant, and equipment of approximately $47 thousand and investments of approximately $149 thousand in non-marketable securities, and proceeds from investment of approximately $5 million, in marketable securities.
Net cash used in investing activities during Fiscal 2020 was approximately $9.5 million which is comprised of approximately $77 thousand for the acquisition and filing expenses related to intellectual property, purchase of property, plant, and equipment of $4.3 million and investments of approximately $5 million in marketable securities.
Financing Activities
Net cash provided by financing activities was approximately $14.7 million for Fiscal 2021, which is comprised of proceeds from borrowings of approximately $580 thousand, repayment of loan of approximately $50 thousand and approximately $14.2 million, net proceeds from ATM sales.
Net cash used in financing activities was $59 thousand during Fiscal 2020, consisting of $18 thousand from the exercise of share options, and the $77 thousand share related expenses.
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Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such differences may be material.
Management believes that the following accounting policies are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (ASC 606). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
ASC 606 prescribes a 5-step process to achieve its core principle. The Company recognizes revenue from trading, rental, or product sales as follows:
I. Identify the contract with the customer.
II. Identify the contractual performance obligations.
III. Determine the amount of consideration/price for the transaction.
IV. Allocate the determined amount of consideration/price to the performance obligations.
V. Recognize revenue when or as the performing party satisfies performance obligations.
The consideration/price for the transaction (performance obligation(s)) is determined as per the agreement or invoice (contract) for the services and products in the Infrastructure and Life Sciences segment.
Revenue in the Infrastructure segment is recognized for the renting business when the equipment is rented, and terms of the agreement have been fulfilled during the period. The revenue from the purchase and resale of physical infrastructure commodities is recognized once the bill of lading along with the invoice have been transferred to the customer. Revenue from the execution of infrastructure contracts is recognized on the basis of the output method as and when part of the performance obligation has been completed and approval from the contracting agency has been obtained after survey of the performance completion as of that date. In the Life Sciences segment, the revenue from the wellness and lifestyle business is recognized once goods have been sold to the customer and the performance obligation has been completed. In retail sales, we offer consumer products through our online stores. Revenue is recognized when control of the goods is transferred to the customer. This generally occurs upon our delivery to a third-party carrier or, to the customer directly. Revenue from tolling services is recognized when the performance obligation, such as processing of the material, has been completed and output material has been transferred to the customer. We license our products to processors. The royalty income from licensing is recognized once goods have been sold by the processor to its customers.
Net sales disaggregated by significant products and services for Fiscal 2021 and 2020 are as follows:
(in thousands)
Year Ended March 31
2021
($)
2020
($)
Infrastructure segment
Rental income (1)
1
7
Construction contracts (2)
174
101
Purchase and resale of physical commodities (3)
-
3,553
Life Sciences segment
Wellness and lifestyle (4)
688
386
Tolling/White labeling service (5)
35
25
Total
898
4,072
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(1) Rental income consists of income from rental of heavy construction equipment.
(2) Construction income consists of the execution of contracts directly or through subcontractors.
(3) Relates to the income from purchase and resale of physical commodities used in infrastructure, like steel, wooden doors, marble, and tiles.
(4) Relates to revenue from wellness and lifestyle segment such as sale of hand sanitizer, bath bombs, gummies, beverages, hemp crude extract, hemp isolate, and hemp distillate and royalty income from the sale of Hyalolex™, now named Hyalolex™ Drops of Clarity™.
(5) Relates to income from tolling and white label services.
Accounts receivable
We make estimates of the collectability of our accounts receivable by analyzing historical payment patterns, customer concentrations, customer creditworthiness, and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required. We had $175 thousand of accounts receivable, net of provision for doubtful debt of $63 thousand as of March 31, 2021, as compared to $133 thousand of accounts receivable, net of provision for doubtful debt of $9 thousand as of March 31, 2020.
Short-term and long-term investments
Our policy for short-term and long-term investments is to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yield in relationship to our investment guidelines and market conditions. Short-term and long-term investments consist of corporate, various government agency and municipal debt securities, as well as certificates of deposit that have maturity dates that are greater than 90 days. Certificates of deposit and commercial paper are carried at cost which approximates fair value. Available-for-sale securities: Investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position.
Investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. Where the Company’s ownership interest is in excess of 20% and the Company has a significant influence, the Company has accounted for the investment based on the equity method in accordance with ASC Topic 323, “ Investments – Equity method and Joint Ventures. ” Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated statements of operations and its share of post-acquisition movements in accumulated other comprehensive income / (loss) is recognized in other comprehensive income / (loss). Where the Company does not have significant influence, the Company has accounted for the investment in accordance with ASC Topic 321, “ Investments-Equity Securities. ”
As of March 31, 2021, investment in marketable securities is valued at fair value and investment in non-marketable securities with ownership of less than 20% valued at cost as per ASC Topic 321, “ Investments-Equity Securities. ”
Impairment of investment
The Company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period any such determination is made. In making this determination, the Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis. The Company’s assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security, which would have an adverse impact on the Company’s financial condition and operating results. The estimated amount of liability is based on the information available to us with respect of bank debt and other borrowings. During Fiscal 2021 and Fiscal 2020 the Company impaired investments of approximately $169 thousand and $782 thousand, respectively.
Inventory
Inventory is valued at the lower of cost or net realizable value, which is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
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Inventory consists of raw materials, finished goods related to wellness products, hand sanitizers, finished hemp-based products, beverages, among others as well as work-in-progress such as extracted crude oil, hemp-based isolate, growing crops, and herbal oils, among others. Work-in-progress also includes product manufacturing in process, costs of growing hemp, in accordance with applicable laws and regulations including but not limited to labor, utilities, fertilizers and irrigation. Inventory is primarily accounted for using the weighted average cost method. Primary costs include raw materials, packaging, direct labor, overhead, shipping and the depreciation of manufacturing equipment. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance, and property taxes.
Harvested crops are measured at net realizable value, with changes recognized in profit or loss only when the harvested crop:
- has a reliable, readily determinable, and realizable market value;
- has relatively insignificant and predictable costs of disposal; and
- is available for immediate delivery.
The Company believes its harvested crops do not have a readily available market. Hence, the Company values its harvested crops at cost. Please refer to Note 3, “Inventory,” of Notes to Consolidated Financial Statements for further information.
Abnormal amounts of idle facility expense, freight, handling costs, scrap, discontinued products and wasted material (spoilage) are expensed in the period they are incurred.
Stock-based compensation
The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC Topic 718, “ Stock-Based Compensation. ” The Company expenses stock-based compensation to employees over the requisite vesting period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite vesting period. For stock-based employee compensation cost recognized at any date will be at least equal to the amount attributable to the share-based compensation that is vested at that date. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model. The assumptions used in calculating the fair value of stock-based awards represent Management’s best estimates. Generally, the closing share price of the Company’s common stock on the date of grant is considered the fair-value of the share. The volatility factor is determined based on the Company’s historical stock prices. The expected term represents the period that our stock-based awards are expected to be outstanding. The Company has never declared or paid any cash dividends. For further information refer to Note 14, “Stock-Based Compensation” of Notes to Consolidated Financial Statements.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax base of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and State income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal, state, and foreign deferred tax assets.
Foreign currency translation
IGC operates in India, U.S., Colombia and Hong Kong and a substantial portion of the Company’s financials are denominated in the Indian Rupee (“INR”), the Hong Kong Dollar (“HKD”) or the Colombian Peso (“COP”). As a result, changes in the relative values of the U.S. Dollar (“USD”), the INR, the HKD or the COP affect financial statements.
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The accompanying financial statements are reported in USD. The INR, HKD and COP are the functional currencies for certain subsidiaries of the Company. The translation of the functional currencies into U.S. dollars is performed for assets and liabilities using the exchange rates in effect at the balance sheet date and for revenues and expenses using average exchange rates prevailing during the reporting periods. Adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income/(loss), a separate component of shareholders’ equity. Transactions in currencies other than the functional currency during the year are converted into the functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the consolidated statements of operations. The exchange rates used for translation purposes are as follows:
Period End Average Rate
Period End Rate
Period
(P&L rate)
(Balance sheet rate)
Year ended March 31, 2021
INR
74.23
Per
USD
INR
73.15
Per
USD
HKD
7.75
Per
USD
HKD
7.77
Per
USD
COP
3,693
Per
USD
COP
3,691.42
Per
USD
Year ended March 31, 2020
INR
70.96
Per
USD
INR
74.74
Per
USD
HKD
7.82
Per
USD
HKD
7.75
Per
USD
COP
3,383,60
Per
USD
COP
4,060
Per
USD
Cybersecurity
We have a cybersecurity policy in place and have implemented tighter cybersecurity measures to safeguard against hackers. Complying with these security measures and compliances is expected to incur further expenses. In Fiscal 2021 and Fiscal 2020, there were no known or detected breaches in cybersecurity.
Recently issued and adopted accounting pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. Newly issued ASUs not listed are expected to have no impact on the Company’s consolidated financial position and results of operations, because either the ASU is not applicable, or the impact is expected to be immaterial. Recent accounting pronouncements which may be applicable to us are described in Note 2, “Significant Accounting Policies” in our Consolidated Financial Statements contained herein in Part II, Item 8.
Off-balance sheet arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A does not apply to us because we are a smaller reporting company.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.